The Tax Battalion

The IRS is still intent on growing its social media presence. Yesterday it unveiled a Tumblr account, even though it has actually been quietly sitting around for about six months. I’m not sure why the IRS waited until now to formally introduce it. According to Mashable, nobody has paid much attention to IRS Tumblr, so maybe the Service was hoping to see some more activity first, but it never came. I’m still not sure there’s much of a place for the IRS in social media, or mobile apps, or the like. I think it’s hard for people to socialize, even virtually, about something so boring or loathesome (loathesome for those who have a tax debt, boring for those who don’t).

Isn’t all social media supposed to be a venue for sharing and discussion? That’s the goal, right? I don’t know, maybe I’m missing the point. Maybe the IRS has different goals when it comes to social media:

The new Tumblr platform is part of a larger effort at the IRS to get information to taxpayers when and where they want it.

~ Terry Lemons, IRS Communications Director

If their objective is to “spread the word” and make tax information available, I suppose they’re doing a decent job at it. So, while the IRS has only 33,274 Twitter followers*, its Facebook page has only about 9,600 likes (probably a vast majority are tax attorneys, accountants, and the like), and it’s had a rather dismal Tumblr debut, I think the stated goal of getting information to people “when and where they want it” is being achieved. The IRS seems pretty content with their 3.1 million YouTube video views.

The bottom line, I think, is that you can’t measure the success of IRS’ social media campaign by counting likes and followers. Not many people “like” the IRS so why would they care to follow them? What visitors probably do is they get what they need and move along. No committment, no lasting relationship, and very little actual socializing. I suppose it’s no surprise people would want to keep their distance virtually, much like they do in real life; normally the less of a role the IRS has in your life, the better.

*33,274 Twitter followers is pretty crappy considering the IRS, in one way or another, impacts pretty much every household in the country. Compare this to the 380,666 San Francisco Giants followers on Twitter, a team that nobody pays much attention to outside of California. And never mind the 33.6 million people around the world who hang on every word produced by Justin Bieber’s two thumbs.

A tax attorney hears all kinds of stories about errors committed by tax preparers or injustices perpetrated by the IRS. People often ask me (sometimes jokingly) “Can I sue them?” My answer is usually, “No, you don’t have a cause of action;” or “No, you don’t have any real damages;” or “No, they are protected by the contract that you signed.” But technically my response should be “Yes, you can, however…”

You can always file a lawsuit. The question is how far is it going to get you? If you file a frivilous lawsuit, chances are it won’t get you very far. If an initial assessment is not done to determine the strength of your case and the likelihood of success, there is a higher likelihood that it will be dismissed. Depending on the circumstances, filing a frivilious lawsuit could also result in you having to cough up money for sanctions and attorneys fees.

Although I have never seen anybody sanctioned or penalized for filing a frivilous Offer in Compromise (OIC), the same principle applies: you have to take a careful look at the strength of your case before you decide to file. And I cannot overemphasize the value of having a trained set of eyes — preferably a tax attorney or an experienced CPA — to help you with this important step. These are just some of the negative consequences of filing an OIC that is ultimately rejected:

Loss of $150 filing fee

Loss of 20% OIC deposit (applied to outstanding balance)

Loss of time involved in preparing and negotiating (typically no less than 6 months, and often closer to 12 months from start to finish)

Lengthening of the Collection Statute Expiration Date / Statute of Limitations on collections (the time period is paused when the offer is filed/”pending” and does not start to run again until 30 days after it is returned or rejected)

Penalties and interest continue to accrue during the time your OIC is pending, and must be paid if the offer is not accepted

There are many disreputable tax resolution firms that will “sell you” an Offer in Compromise service without doing their due diligence on the front end. First, they know you want to settle your case for less than what you owe. Second, they really only care about closing the deal. And third, they know that anyone can file an OIC by simply filling out the right forms and attaching the right fees. When considering who you should hire for tax resolution services, look for somebody who offers a free and thorough consultation before any work is done on your case. Find somebody with enough integrity to help you determine the best way to resolve your case, rather than just tell you what you want to hear.

So, the question should not be “Can I sue?” or “Can I file and OIC?” The better question is “If I sue, what is the likelihood of success?” or “If I file an OIC, what is the chance the IRS will accept it?”

Even with all the shenanigans this year* the IRS decided to upgrade the “Where’s My Refund?” tool that taxpayers often use to track the status of their federal income tax refund and promised that refund processing times will not be adversely affected. In previous years Where’s My Refund? (“WMR?”) generated an estimated refund receipt date for you based on the fact that 90% of all refunds are processed and delivered within 21 days of the date that you file (assuming you file electronically, which almost everybody does these days).

This year, the IRS claims that “WMR?” will be able to ascertain an “actual personalized refund date.” Now I’m not sure exactly what this means. Is it personalized in the sense that it records the date that your return was processed and then adds 21 days, or is the tool more sophisticated than that?

The new version of “WMR?” breaks your refund progress down into three stages (available as soon as 24 hours after you e-file your return):

Return Received

Refund Approved

Refund Sent

There is no information from the IRS about what happens when they encounter problems in the processing of a return. For instance, if mistakes are found on the return and a refund is not approved, will “WMR?” inform the taxpayer of the hiccup, will it remain stuck on the “Return Received” stage, or will the tool simply stop working?

Here are some “WMR?” tips from the IRS:

Don’t try using it before January 30th, even if you’ve already filed. It won’t work until the 30th.

Don’t call. The IRS claims “WMR?” provides the most complete and up-to-date information about your refund claim and if you call to ask a customer service rep, they will be able to tell you no more than what you already know. As a tax attorney who is on the phone with the IRS every day, I can certainly vouch for that!

Don’t check more than once a day. Information in the “WMR?” tool is updated overnight and only once every 24 hours, so checking in every couple hours will only slow things down for everyone else.

*It is bold of the IRS to promise more precise refund tracking given the fact that (1) they have spent so much effort integrating the “fiscal cliff” legislation that recently passed and things could still be “buggy;” (2) they have been beefing up security filters that are meant to minimize refund fraud and admit that this will cause some refunds to be delayed; and (3) hundreds of thousands of taxpayers will potentially hire incompetent, unregistered (*Gasp*) return preparers this year due to their return preparer registration program being shot to pieces by a federal judge in D.C.

If you follow current events in the world of tax relief and tax preparation, you probably heard about the federal district court decision permanently enjoining the IRS from enforcing its 2011 tax return preparer regulations. The U.S. District Court for the District of Columbia ruled that the IRS lacked authority to regulate tax return preparer certification programs —
such authority would have to be granted by Congress.

The IRS Return Preparer Initiative would have required thousands of non-professional return preparers across the country to pass minimum competency exams, pay a fee, and complete minimum education requirements. In fact, many return preparers did take the exam and pay the fee, all for naught apparently. The initiative did not seek to regulate the CPA, tax attorney, or enrolled agent.

Large tax prep companies like Intuit (TurboTax), Jackson Hewitt, and H&R Block disapprove of the decision; you can probably guess why. They will tell you that it hurts taxpayers who unwarily hire incompetent return preparers, but we know their only concern is the bottom line and weeding out as much competition as possible. Of course, the “mom & pop” tax prep firms see this court decision as a big victory.

Some believe that voluntary certification is a better solution. Voluntary certification would still raise the bar for tax preparers and the industry in general, but in a more “free market” sort of way. Tax preparers would decide on their own to certify, or not to certify. And individuals seeking tax help would decide on their own to hire a certified preparer, or take their chances with someone else.

At this point it is not clear whether the IRS will appeal the decision. Read the IRS official statement here.

Here are a couple more changes following up to yesterday’s blog entry:

Earned Income Tax Credit

Changes to the Earned Income Tax Credit (EITC) make the credit more available, and valuable in tax year 2012 than it was in tax year 2011. Credit eligibility is based on income and household size. Households with three or more qualifying children will receive a 2012 tax credit of $5,891 if their Adjusted Gross Income (AGI) is less than $45,060 when filing individually or $50,270 when married filing jointly. The equivalent tax relief in 2011 was $5,751 for individuals with an annual AGI less than $43,998 or $49,078 when married filing jointly.

On the other end of the EITC spectrum, for tax year 2012, households with no qualifying children will receive a $475 tax credit if their AGI is less than $13,980 when filing individually or $19,190 when filing married filing jointly. Similar middle tier credit adjustments are available for taxpayers claiming one or two qualifying children.

Retirement Contributions

For tax year 2012, the ceiling on elective deferrals without the need to pay upfront taxes for 401(k), 403(b), certain 457 accounts, and thrift savings plans increased $500 from $16,500 to $17,000 for tax year 2012. Additionally, the limit on annual additions to contribution plans increased for tax year 2012 from $49,000 to $50,000.

These are just the highlights of some of the changes that you’ll find when working on your tax returns come April. If some of these changes caught you off guard, learn your lesson and prepare a plan now for tax year 2013… due April 2014.

I was recently asked what changes are looming for this year’s taxes. Seems like a simple enough question, right? But the question wasn’t about 2013; they were asking me about tax year 2012 and any changes they should be aware of compared to tax year 2011. Technically, they were asking about last year’s changes that are now a concern given the looming tax day, April 15, 2013. Here are just a couple:

Personal Exemptions

For tax year 2012, your line 42 exemption (if you file a Form 1040) has increased since tax year 2011. Most taxpayers will receive a $100.00 increase from $3,700 in tax year 2011 to 3,800 in tax year 2012 for their personal exemption amount for each qualifying person.

Standard Deductions

Taxpayers who take the standard deduction, instead of itemizing their deductions, will benefit from tax year 2012 increases from the 2011 standard deduction amounts. The 2012 standard deduction amount is $11,900 for married couples filing a joint return, up $300 from the standard deduction allowed in tax year 2011. The standard deduction for taxpayers filing single or married filing separately is $5,950, up $150 from tax year 2011. The standard deduction for taxpayers filing as head of household for tax year 2012 is $8,700, up $200 from tax year 2011.

This year the IRS was not ready to begin receiving and processing 2012 tax returns when they normally do so. In fact, they’re still not ready. The IRS has been making last minute changes stemming from the American Taxpayer Relief Act which, by the way, has such a nifty name. Where exactly is the tax relief in this legislation?

The IRS doesn’t appear to be ready for forms commonly filed by fishermen and farmers either. Form 4562 and the processing systems involved need “extensive programming and testing” according to the IRS. Another unintended consequence of the American Taxpayer Relief Act.

And the estimated tax normally required by March 1st can be paid up until April 15th without incurring a penalty this year. It does not look like merit-based penalty relief; all you have to do is “ask.” However, it is important for farmers and fishermen to know that this penalty relief does not come automatically. They will need to submit a penalty waiver (Form 2210-F) with their tax return.

One of the chronic problems at the IRS is they keep issuing refunds to criminals. Refund fraud (a criminal form of tax relief) is a widespread issue reaching all the way into our country’s prisons. Most people would probably be shocked to know how common refund fraud is in prison.

The Treasury Inspector General for Tax Administration (TIGTA) has carefully studied this problem over the past seven years and the data shows things are not getting better.

In calendar year 2004, there were 18,103 fraudulent tax returns filed by prisoners and the IRS handed out $13.4 million in refunds to them. In 2007, there were 37,447 fraudulent tax returns filed by prisoners and the IRS paid out $29.2 million. The most recent data is from 2010 and it shows that there were a staggering 91,434 fraudulent tax returns filed from prison. The IRS paid $35.2 million that year. But to be fair, they also prevented $757.6 million worth of refunds (identifying them as fraudulent before the damage was done).

In a new study, TIGTA explains how the “Prisoner File” which the IRS relies on to help them vet out bad refund claims is often innacurate and incomplete. Furthermore, the rules allowing certain communications between the Treasury and the Federal Bureau of Prisons have expired. Given the statistical trend of this tax problem, it obviously should be an area of focus for our government in coming years.

Many self-employed taxpayers work from home. But not all of them can deduct expenses for the “business use of their home.” The tax worksheet (Form 8829) may be only one page long, but it’s 43 lines of mind-numbing detail (at least for one more year) that you are better off skipping if you see that you don’t meet the threshhold requirements.

In order to qualify for the “business use of the home” deduction, there must be a section (or sections) of your home which you use exclusively and regularly as your principle place of business. The deduction amount is based on square footage dedicated to this purpose. Therefore, no matter how often you find yourself on your laptop in that 3′ x 3′ area of your mancave occupied by the Lazyboy, if you ocassionally flip on the TV from that same spot, or host superbowl parties or such, you cannot satisfy the “exclusivity” prong of the test.

The good news is the IRS recently announced a new simplified option for “business use of the home” that will apply to 2013 taxes (during the 2014 filing season). Taxpayers will be able to opt for a straight $5.00 per square food deduction (capped at $1,500 per year) instead of stressing over dreaded Form 8829. It is believed that more taxapayers will take advantage of the tax relief afforded by this deduction and will save taxpayers something like 1.6 million hours of work and recordkeeping annually. However, the basic exclusivity requirments explained above will remain in place.

Tax protestors typically turn to a handful of “canned” arguments regarding the government’s lack of authority to levee taxes. These arguments are typically not very successful. When tax protestors refuse to pay taxes based on these flawed legal positions, they are typically hit with a barrage of penalties and interest on top of their tax debt, and some even do prison time. But tax protestors who are also former IRS agents? — not very typical.

That’s what makes the story of Sherry Peel Jackson so interesting. She worked for seven years as an IRS revenue agent, then she went into private practice as a CPA, then she spent four years in prison for failure to file tax returns, and now she tours around promoting the books she wrote in prison about the illegalities of income taxes.

Don’t believe anyone who tells you that taxes are illegal. You will want to avoid these people like the plague. The tax protestor groups are a sham and can cause you some serious tax problems.

Attorney Advertisement. Tax Attorneys Montgomery & Wetenkamp are licensed by the State Bar of California, are licensed attorneys authorized to practice before the United States Tax Court, and may practice before the Internal Revenue Service (IRS) as attorneys in all 50 states. Sacramento Tax Attorneys and Modesto Tax Attorneys Montgomery & Wetenkamp perform all services in Sacramento, California and Modesto, California. The content of this website is for informational purposes only and does not constitute legal advice. The tax information contained on this website, is not intended to be used, and cannot be used, referred to or relied upon, for the purpose of avoiding tax-related penalties under the Internal Revenue Code or promoting, marketing, or recommending to another party any tax-related transaction or matter addressed herein. Past successes cannot be an assurance of future successes because each case must be decided on its own merits and will differ if based on different facts. Full disclaimer provided on our disclaimer page and is incorporated herein by reference.

Follow us

Montgomery & Wetenkamp

Tax relief attorneys that will fight for you

Don’t fight the IRS alone. Get the power of an IRS tax attorney to obtain the IRS tax relief you deserve, nationwide.